Chart your way to profits tim knight

CHART

YOUR WAY TO

PROFITS
SECOND EDITION
The Online Trader’s Guide to
Technical Analysis with ProphetCharts®

TIM KNIGHT



Chart Your
Way to
Profits
The Online Trader’s Guide
to Technical Analysis
with ProphetCharts
Second Edition

TIM KNIGHT

John Wiley & Sons, Inc.


To Alexander Dobrovolski, who made it all possible

Copyright

C

2010 by Tim Knight. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data:
Knight, Tim, 1966–

Chart your way to profits : the online trader’s guide to technical analysis with
ProphetCharts / Tim Knight. – 2nd ed.
p. cm. – (Wiley trading series)
Includes bibliographical references and index.
ISBN 978-0-470-62002-1 (cloth)
1. Stocks–Charts, diagrams, etc. 2. Investment analysis. 3. Electronic trading
of securities. I. Title.
HG4638.K55 2010
332.63 2042–dc22
2010005946
Printed in the United States of America
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Contents

Introduction

v

About the Author

vii
1

CHAPTER 1

Technical Analysis

CHAPTER 2

Fundamentals of Chart Creation

26

CHAPTER 3

Modules and Preferences

44

CHAPTER 4

Watch Lists and Chart Styles

70

CHAPTER 5

Market and Data Types

83

CHAPTER 6

Indicators in Action

111

CHAPTER 7

Multiple Studies and Comparisons

137

CHAPTER 8

Trendlines and Reversals

164

CHAPTER 9

Expansion and Channels

225

CHAPTER 10 Rounded Tops and Saucers

240

CHAPTER 11 Cup with Handle

271

CHAPTER 12 Multiple Tops and Bottoms

293

CHAPTER 13 Head and Shoulders

318

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CONTENTS

CHAPTER 14 Pattern Recognition

387

CHAPTER 15 Fibonacci Drawings

408

CHAPTER 16 Power Features

446

CHAPTER 17 For Bears Only

466

CHAPTER 18 A Practical Guide to Trading

481

APPENDIX A

The Kirk Report Interview

492

APPENDIX B

MarketMatrix

507

Index

515


Introduction

ne of my favorite photographs was taken by my wife on our honeymoon. We were on the second leg of our trip, the first of which
was in Dubrovnik, Croatia (part of the former Yugoslavia), and the
second in central Italy. The photo shows me in bed, apparently asleep. The
title of the book I am holding across my chest is clearly legible: Technical
Analysis of Stock Trends, by Edwards and Magee.
Charting the financial markets has been my passion for over 20 years.
The very first trade I ever placed in my life was on Black Monday, the crash
of 1987—hardly a propitious start. But the markets and their vagaries have
fascinated me ever since.
In 1992, I took my three main areas of interest—computers, trading,
and business—and combined them to create Prophet Financial Systems.
That was before the commercial Internet even existed (we used dial-up
modems in those days for daily data updates). Over the years, we built
a wide array of tools, all with the purpose of trying to help people make
better trading decisions.
To be honest, I personally find books about technical analysis kind of
boring. They are full of indicators, formulas, tables, and numbers. By and
large, they put me to sleep (witness the honeymoon photo). I set out to
make this book different. I wanted you to enjoy learning from this book,
and I wanted to use as many real-life examples as possible. Hypothetical
charts mean little, in my opinion. So you will find this book packed with
hundreds of examples drawn from real trading in U.S. equity markets. This
should give you a practical way to see how to apply the ideas presented in

these pages.

O

SOME HISTORY
In 1998, we at Prophet took the first small steps toward creating a charting applet, which we called JavaCharts. My philosophy in product development has always been the same: have my engineers create a product that
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INTRODUCTION

I love to use. This had the happy side effect of attracting a lot of traders,
because they liked what they saw, too.
JavaCharts became the foundation of the business in many ways. It
was very popular on our own web site, Prophet.net, and we licensed it to
a wide variety of brokerages and other businesses. The quality and reputation of the product was an important reason behind our securing the “Best
of the Web” awards from both Barron’s and Forbes, beginning in 1999 and
continuing for years.
Over a nearly four-year period—from the beginning of 2003 to the end
of 2006—we focused on our next generation of charting. Originally referring to this as simply JavaCharts 2, we later christened it ProphetCharts.
Although this book will prove helpful to anyone interested in technical
analysis, it will be especially instructive to ProphetCharts users.

HOW TO REACH ME
I would love to hear from you! I enjoy being in touch with other people
interested in charting, so feel free to drop me a line with your questions
and comments. My e-mail address is
You also might enjoy my widely read blog, The Slope of Hope, which

can be accessed via your browser at www.slopeofhope.com.
Whether you use any charting product, you should benefit from this
book. I’ve tried to make it accessible, understandable, and practical for
anyone interested in making better trading decisions. Let me know what
you think, and good luck with your trading!


About the Author

im Knight was the founder of Prophet Financial Systems, an online
software company that was acquired by INVESTools in January 2005,
which in turn was acquired by Ameritrade in the summer of 2009. He
currently is an active trader and professional money manager.
Tim founded Prophet in 1992 to provide market data to self-directed
investors using stand-alone technical analysis software. With the advent of the World Wide Web, he envisioned combining the power of
these expensive software packages with browser-based convenience—
enabling traders to focus on their analysis, instead of worrying about software upgrades and database issues. His online technical analysis suite at
Prophet.Net delivered on this vision.
In his trading today, Tim relies on technical analysis as the primary
basis for his investment decisions. He is the managing partner for the Tim
Knight Organization, a money management firm, and writes the popular
Slope of Hope blog.
Before starting Prophet, Tim was Vice President of Technology Products at Montgomery Securities in San Francisco, where he led the development of an institutional online-trading platform. Additionally, he held
various positions in marketing management at Apple Computer and is the
author of 20 computer books. Tim is a graduate of Santa Clara University’s
honors program and holds a bachelor’s degree in business management.
He lives in Palo Alto, California, with his wife, children, dog, and three
pampered chickens.

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vii



CHAPTER 1

Technical
Analysis
What It Is and Why It Works

echnical analysis is the study of past price movement for the purpose of predicting future price movement, which, if done correctly,
can lead to substantial trading profits. The prices studied are typically those of financial instruments such as stocks, commodities, and foreign currencies. But no matter what market is being studied, the underlying
principles are the same. Specifically:

T

r A price chart is the most perfect representation of the balance of buyers and sellers for any given entity.

r Prices tend to move in trends and patterns, which, based on historical analysis, can lead to statistically meaningful probabilities of future
price movement.
r The close and skilled examination of a price chart can guide traders
as to how long they should remain in a trade and when they should
exit.
No matter what you trade, technical analysis can make you a better
and more profitable trader. Price charts will consistently provide the most
truthful picture that can be had of a tradable object, because everything
that can be publicly known or speculated is already built into the graph.
You will never get the same pure representation of a stock (or anything
else) from a broker, a newsletter writer, or an analyst. A chart is as good

as it gets.

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CHART YOUR WAY TO PROFITS

THE BULLS VERSUS THE BEARS
Before we get into price charts—and there will be hundreds of them in this
book—let’s examine the basics about what forms a price chart in the first
place: sellers (the supply) and buyers (the demand).
When buyers are more powerful than sellers, prices move up. When
sellers are more powerful than buyers, prices move down. This tug-of-war,
in these simple terms, is behind the trillions of dollars that get traded every
week of the year.
What many people tend to forget is that every time a trade is placed,
each side believes that they are right and the other side of the transaction
is wrong. When person A buys stock from person B, person A believes
the stock is going to go up in price (meaning B is selling too cheap), and
person B believes he would rather have the cash than the stock (meaning
A is buying an overvalued, or at least fully valued, stock).
As a group, the individuals who believe a given instrument is going to
move higher in price are the bulls, whereas the opposing camp, believing
prices for the same instrument will drop, are the bears. And the war between the bulls and the bears, fought over many thousands of different
stocks, options, and commodities every day, is what creates price movement. Analyzing that movement well is what will give you a substantial
edge in the markets you trade.

WHY IS A PREDICTION VALUABLE?

The astonishing thing about technical analysis is not only how far out
its predictive power goes but also how, even with a future full of unknowns, it still seems able to see its way clear to make a meaningful prediction. A staggering number of great forces can wreak havoc with financial
markets—scandals, war, governmental chaos, interest rates, terrorist attacks, earnings surprises, the social climate, and so forth. Through it all,
the knowledgeable chartist can see what others cannot see and know what
seems unknowable.
Let’s take a real-life example with a very long time span: the Dow
Jones Industrial Average over a period of more than 100 years. Figure 1.1
has two Fibonacci fans drawn on it. (Don’t worry if you are not familiar
with that term; it will be explained in Chapter 15.) These fans are drawn
from an extreme low to an extreme high. The first is drawn from the low
in 1903 (the “Rich Man’s Panic,” it was called) to the peak of the roaring twenties bull market in 1929. The second is drawn from the depths


Technical Analysis

3

FIGURE 1.1 The Dow Jones Industrial Average from 1900 to 2005, enhanced with
two Fibonacci fans.

of the depression in 1932 to the peak of the Internet bubble in January
2000.
There are a variety of astounding things to note in this chart:

r The point where the two major lines intersect in 1974 predicted the
precise bottom of the massive 1973–1974 bear market.

r The steady climb from 1990 to 1995 was perfectly bounded by two of
the fan lines.

r Most impressive of all, the ultimate market top in 2000 was established
by the first fan (which, remember, began 97 years before).
Figure 1.2 is a close-up view of late 1999 and early 2000; as you
can see, the almost century-old fan line creates impressive resistance
to these prices moving higher on four different occasions. If we owned
stocks at that time, this would be a vital warning signal that the top was
established.
This is an extreme example, but the point is that being able to gain
insight into the most likely future of a particular price is a vehicle for real
trading profits. It is an edge that those not using charts will lack.


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CHART YOUR WAY TO PROFITS

FIGURE 1.2 Highlighted here are four instances that the Dow bounced off the
fan line established over a century earlier.

A WORD ON SHORTING
There will be many times in this book where we will refer to “shorting” a
particular stock or “being short” a stock. It is valuable to understand this
terminology, in case you do not already.
Most people participating in a market are “long” the market; that is,
they own the security with the hope that the price will go up. So if a person
owns 1,000 shares of Apple Computer (AAPL) which he bought at $50 per
share, and later sells it for $90 per share, he has made $40,000 based on the
long position ($40 per share gain times 1,000 shares).
A person who is short a security has done things backwards: he first
sells a security he does not own for a certain price with the hope that the

price will go down. The reason people are able to sell stock they do not own
(essentially giving them a negative number of shares) is that their broker
has so much of the stock already that it is available to sell with the promise
that, at some point, it will be repurchased to replace the shares that were
sold.
Taking the example of Apple again, an individual might sell short 1,000
shares of Apple at $90 per share. If the stock fell to $50 and the trader “covered” the position (that is, bought 1,000 shares of the stock, thus making


Technical Analysis

5

the broker whole), he would have made $40,000 just as the other trader did,
only he would have done it in the other direction.
The advantages and disadvantages of shorting markets will be discussed near the end of the book, but the principal benefit of shorting is
that you can take advantage of a falling market as well as a rising one. If
you are at the beginning of a bear market, and you can only buy stocks, it
will be very difficult to make money. If you are able to short stocks at high
prices and then buy them back later at low prices, you can make money in
either an up or down market.
The key disadvantage to shorting stocks is that all the big money is
made by going long. The most you can ever make with a short position is
100 percent (that is, if the stock goes to $0.00, which almost never happens), whereas the most you can make with a long position is unlimited.
You can definitely make profits shorting markets, but unless you are a brilliant options trader, you will never get rich being a bear (that is, a person
betting on a market going down).

SUPPORT AND RESISTANCE
The world of technical analysis can seem overwhelming to many. There are
hundreds of complex mathematical indicators, studies, patterns, and rules.

But there is absolutely no reason good charting has to be complicated. A
trader can set aside all of the complexity and focus on some solid basics,
starting with the ideas of support and resistance.
To illustrate this, think back to the children’s game Red Rover. In case
you don’t remember it, kids split up into two groups, and each group forms
a line by holding hands so that there are two parallel lines of kids standing
across a field opposite one another. Then one team calls out, “Red Rover,
Red Rover, send Ethan (or some other kid’s name) right over!” and the
named child rushes headlong into the other line, trying to break through. If
he busts through the line, he gets to choose a person to join his team.
This image of “breaking through” is exactly what support and resistance are all about, because in the grown-up world of trading, buyers of
securities tend to mass at certain price levels. And those owners will hold
the line at those prices if the security tries to go above (in the case of resistance) or below (in the case of support).
Let’s take a simple hypothetical example. Suppose a given stock traded
at between $4.95 and $5.05 for many months. Day after day, week after
week, it stayed in this range, accumulating owners of the stock at around
the $5 level. Let’s go on to assume the company has some good news, and
the stock goes up to $6, but subsequent profit taking pushes the stock back
down again.


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CHART YOUR WAY TO PROFITS

Given this circumstance, you can rest assured that it’s unlikely the
stock is going to drop beneath about the $5 level. The reason is that there’s
a huge number of owners at that level, and they are simply not going to
sell. Fear and greed are the primary drivers of the market, and in this case,
greed is going to come first (meaning the owners are telling the market “I

refuse to sell my stock at this price for a breakeven trade. I want a profit”).
If something remarkable happens and it shoves the stock down to, say,
$4.50, the fear starts to take hold (“I am worried my losses will get even
worse, so I’m going to sell now while I still have the chance”), which means
the selling will feed on itself.
Expressed in economic terms, the stock price found equilibrium at the
$5 level, thus amassing a large number of owners. If the stock price challenges that level again, equilibrium will once more take hold, stabilizing
the price. The people owning stock at this level constitute resistance—the
“Red Rover” line will hold fast, unless a very powerful force punches
through it.
Support, therefore, is a price level above which prices are prone to
stay. Resistance is a price level below which prices are prone to stay. So
these are reliable levels at which to count on a pause in price movement,
unless the levels are violated, which is where the real action is.

WHAT HAPPENS WHEN PRICES
PUNCH THROUGH?
One time when outsize profits can be made is when prices push through
support or resistance and break out. The longer a price has been trying to
push through a certain price level, the more forceful it will be if it finally
does make it through. (Think back to our Red Rover game, and picture a
particularly eager youngster who has tried 10 times to get through the line
and is more determined than ever to do so.)
Figure 1.3 is an example of how potent this is. The first half of the stock
chart for ALVR shows prices bouncing between about $2.00 and $2.50. For
month after month, the stock was completely stagnant, and buyers were
accumulating at these levels. There were several attempts to push through
resistance (represented by the horizontal line), but they failed . . . until the
midpoint of the graph, in April.
At that point, three important things happened: (1) buyers overcame

sellers, pushing prices above resistance; (2) volume increased as excitement began to build around the stock; and (3) when some profit taking
took place, prices eased back, but they did not go beneath the former line
of resistance. From that point, the stock moved up about 500 percent in
the course of a year.


Technical Analysis

7

FIGURE 1.3 After breaking out of a saucer pattern, ALVR blasted ahead on much
bigger volume to a 500 percent gain in about a year.

The concept of how resistance can change into support (and vice
versa) is critical to your understanding of reading a chart. Any sort of
line—be it a trend line, a channel, a horizontal line—has two faces to it:
support and resistance. Once prices cross a line, the nature of that line
changes. As you will learn later in this book, if a price crosses a line more
than once, the line becomes meaningless and should probably be deleted.
Let’s take another look at resistance to see how valuable it is to have an
awareness of price behavior at certain levels. Figure 1.4 shows the chart for
Chesapeake Energy (symbol CHK) over a period of about half a year. Early
on, the price was blasting skyward to a new high, then it slumped down
through August. It then regained its footing and mounted a new assault on
higher prices, but it was repelled again at about the same level. A couple
of months later, in November, a third attempt was made to push past the
$34 barrier, but it failed a third time. You can imagine the frustration and
exasperation of the owners of this stock as they kept seeing their stock
getting shoved away from higher prices.
What the market was telling the owners of this stock was: “The price is

probably not going to go any higher.” The supply of stock (those selling it)
represented what is known as overhead resistance. Perhaps some people
who bought earlier at $34 promised themselves that the moment the stock
recovered to a breakeven level, they would get out. Perhaps most people


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CHART YOUR WAY TO PROFITS

FIGURE 1.4 This is known as a triple top, where a new high happens three times,
but the price can’t get above it. Once the attempts at overcoming this resistance
failed, the stock collapsed.

felt the stock was fully valued at $34. The reasons really don’t matter; the
fact is that over a six-month period, there was an invisible line drawn on
the stock chart through which prices simply could not pass.
What happened afterwards is very interesting: far from pushing above
the $34 price, the stock instead started collapsing. As Figure 1.5 shows,
CHK withered away from $34 per share to about 50 cents, almost a 99 percent decline. Clearly the stock had worse problems than a triple top, but
the important point here is that the market was telling the owners of the
stock something, and the triple top was a warning that this was a stock to
sell, not keep.

HISTORY REPEATS ITSELF
Another tenet of technical analysis is that human behavior doesn’t change,
and therefore price behavior doesn’t change. If a certain pattern is predictable now, it will be just as predictable 10 years from now.
An excellent illustration of this on a single chart is Figure 1.6. The stock
shown here is Red Hat (symbol RHAT) over a four-year period. For all of

Technical Analysis

9

FIGURE 1.5 After its triple top, CHK went on to a nearly 99 percent decline in
price.

FIGURE 1.6 Patterns can—and often do—repeat themselves in the same chart.


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CHART YOUR WAY TO PROFITS

2002 and most of 2003, RHAT was forming a rather large cup with handle
pattern, indicated by the horizontal line. When it broke above this pattern,
the stock just about tripled in price.
After it peaked, RHAT sank for about a year before establishing another pattern. This time, the pattern was quite similar, only smaller. And
once again, after it broke above the pattern, the stock soared (this time
only double its breakout price, which is typical of a smaller pattern).
As you can see, once you train your eyes to find patterns and understand what the important price points are, you can take advantage of what
are relatively predictable price movements.
A variety of factors dictate the power of a breakout from a particular
pattern. One is the pattern itself, because some patterns are simply more
potent and reliable than others. Another is the volume accompanying the
price movement; a stock moving higher on stronger and stronger volume
is far more attractive than a stock moving the same direction on anemic
volume. Another factor still is the length of the pattern. A breakout from a
three-year-old saucer is going to have a lot more fireworks than a breakout

from a tiny two-week saucer.
Figure 1.7 provides an illustration of both (a) repetition and (b) pattern size equaling potency. The chart is the Russell 2000. The symbol
is $RUT. This chart is actually showing several patterns within a larger

FIGURE 1.7 An ascending wedge and, within that pattern, three nearly identical
patterns indicated by the horizontal lines.


Technical Analysis

11

pattern. The broad pattern, shown by the two almost parallel lines, is an
ascending wedge. This index is making a series of higher highs (bumping
up against the upper line) and higher lows (bouncing off the lower line). So
the index is in a general uptrend.
Within this pattern, though, are three smaller patterns, all of which are
progressively smaller versions of the first. If you look at the shape of the
prices beneath the horizontal line, you can see that this price movement
is virtually identical in all three instances, although the second pattern is
smaller that the first, and the third pattern is smaller still.
What’s interesting, of course, is what happens after the prices break
above each horizontal line—the stock moves higher. But not only can we
see the stock moving higher, we can also observe that the amount it goes up
is a little less each time. This is an example of how the oomph of the push
upward is closely related to how sizable the pattern is in the first place.

HEAD AND SHOULDERS
Throughout this book, we’ll be learning about a variety of patterns, a number of which are known as reversal patterns. They are called this because
they forecast a reversal in price direction.

One of the most basic and powerful reversal patterns is called the head
and shoulders. These formations are pretty easy to spot: on the left side is
a hump in prices (gradually moving up and then moving down again to
a certain supporting price). In the middle is a taller hump, again, slowly
moving up and then down again to support; this is the head. Finally, there
is another hump, the smallest of the three (ideally), which is the right
shoulder.
The support line is what’s key here. It even has a special name in the
context of this pattern; instead of being called the support line, it’s called
the neckline. If prices break beneath the neckline, there are three general
possibilities:
1. The prices will sink from there.
2. Prices will sink briefly, recover to touch the underside of what used to

be support (now resistance), and then start to fall.
3. Prices will stabilize, push back toward the former support line, and

then overcome it, thus negating the pattern.
The ideal circumstance is (2), since it allows a person to carefully enter
the position at a very desirable price and set a stop just above the former
support line. This is the ideal low risk–high reward scenario. Figure 1.8


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CHART YOUR WAY TO PROFITS

FIGURE 1.8 After a break beneath the neckline in November, Ariba lost virtually
all of its value.

is an example of just this circumstance, with Ariba (symbol ARBA) forming a very nice head and shoulders pattern from July through November.
Once prices broke beneath the neckline, the stock went from about $600
to $300. But for the first couple of weeks of December, buyers pushed the
stock back to about $550, still below the neckline. (Note: these prices are
adjusted for reverse stock splits.)
This is a test of the pattern. The pattern has already established itself, and the chart is bearish, but buyers are still trying to push the stock
higher. You can almost picture the bulls and bears in a tug-of-war, with
the neckline in the middle of the battle. In this case, shorting the stock
at $550 would have been brilliant, because after testing the pattern, the
price started to sink virtually without pause until almost all the equity was
wiped out.
Take a look at Figure 1.9, which is a very similar chart. Broadcom (symbol BRCM) managed to survive the initial burst of the NASDAQ bubble in
the first half of 2000. By October of that year, it broke beneath the neckline
in a very well-formed head and shoulders pattern, and it didn’t stop once
to test that level again. The stock plummeted from $130 to under $10 per
share in a couple of years.


Technical Analysis

13

FIGURE 1.9 Broadcom, one of the hottest stocks of the Internet bubble, collapsed
after a head and shoulders pattern in late 2000.

A BREAKOUT AND A FAILURE
Stock patterns are every bit as powerful on the upside as on the downside.
When looking for bullish patterns, you need to be on the lookout for breaks
above resistance, as opposed to breakdowns beneath support (as is the
case with bearish patterns).

One such bullish breakout is shown in Figure 1.10, where a cup with
handle pattern had been forming over the course of a year. At the midpoint of the chart, notice two important things happen simultaneously:
(1) the price suddenly bursts well above the resistance line (drawn here
for clarity), and (2) the volume in the stock increases substantially (as you
can see from the volume graph located in the lower pane). Together, there
is no more powerful positive statement about a stock’s bullish direction,
and this stock kept climbing by hundreds of percent afterward. As you will
learn throughout this book, volume is almost as important as price movement, particularly with respect to bullish formations, which require a lot of
volume to fuel the rise.
As you gain experience in recognizing chart patterns and anticipating
the moves that stocks can make after a certain pattern is fulfilled, you may


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CHART YOUR WAY TO PROFITS

FIGURE 1.10 A price breakout with accompanying high volume is an excellent
predictor of future upward movement.

be tempted to mentally draw in a complete pattern where one hasn’t fully
formed yet. For example, if you see a shoulder, a head, and part of a shoulder, you might conclude that this is going to complete as a head and shoulders pattern, and you might as well get in now and enjoy the extra profits
that exist between the current price and the neckline. Or you might see
a saucer formation that is getting very close to breaking out, and you figure you might as well get a better price on the stock by not waiting for
the breakout, since sometimes breakouts can rapidly push the stock up to
much riskier levels.
It’s important not to fall into this trap. Not all patterns that complete
themselves perform as they are supposed to perform, and the chances for
success are even lower if the pattern doesn’t really finish forming. It’s critically important that you wait for a pattern to complete instead of trading
off emerging patterns.

A good example of this is shown in Figure 1.11. This stock was forming a very nice inverted head and shoulders pattern for nearly a year. The
horizontal line indicates the neckline, which, had prices pushed above it,
would have been an important measuring tool for the pattern.
However, about three-quarters of the way across the chart, you can see
that the price stalled at about $25 and could not gather the energy to make a
run for the neckline. Instead, the price started sinking, made a flimsy effort


Technical Analysis

15

FIGURE 1.11 Anticipating a breakout is almost always a mistake. The anticipated
breakout, shown by the horizontal line, never happened, and afterwards the stock
withered away.

to recover, and then started sinking hard. Had you bought at $25, contemplating a big breakout to much higher prices, you might have held on to the
stock as it sank into the single digits. There are countless examples of this
kind of event, and you must always remember to have the patience to wait
for the pattern to complete.

A CHANGE IN DIRECTION
Most people have heard the maxim “The trend is your friend.” One might
supplement that by saying, “The trend is your friend, but every trend someday ends.” Technical analysis is a means by which you can judge that trend
change.
Many embellishments you can put on a chart, such as trend lines and
channels, can be used to assess when an upward-moving stock is starting
to head down, or vice versa. Look at Figure 1.12, for example, which is a
20-year-long chart of Harris Corporation. For well over a decade, the stock
was trending down, making a series of lower highs and lower lows. You

can see this downtrend more clearly because of the channel lines that have
been drawn.